The Market Has Doubled; Now What?

Financial planning moves to consider

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Roger Wohlner

The S&P 500 Index bottomed out on March 9, 2009 at 677. Since the low point of the 2008-09 market drop, the index has roared back and as of the market close on Tuesday stands at just over 1,400. While still lower than its 2007 high of 1,565, this is still an extraordinary market rally. The index finished out 2011 at 1,258.

Depending upon how you were invested, your portfolio has likely recovered and possibly surpassed its pre 2008-09 market drop levels. What should you do now? Here are a few thoughts.

Update or get a financial plan. This is a great time to take stock of where you are in terms of your financial goals. Should you lighten up on risk? How much do you need to save? How should you allocate your investments?

Review your individual holdings. This is true with all holdings, but especially so with individual stocks. Any number of individual names are at or near all-time highs. This doesn’t mean that they can’t move higher, but it also doesn’t mean that they will either. Look at everything you own and ask yourself, “Would I buy this today at its current price?” It is important to set expectations for each of your investment holdings.

Review your overall asset allocation and rebalance. Equities have outperformed fixed income over the past several months and have staged a nice run up so far in 2012. Your portfolio might be overweight in equities compared to your investment strategy. It is important that you rebalance periodically to maintain the risk profile inherent in your financial plan.

Hire professional help if you need it. The financial landscape gets scarier and moves faster seemingly each day. If you need help sorting through this, perhaps it is time to engage the services of a financial professional. Make sure that you ask any prospective advisers many questions, that you fully understand what they will and won’t do for you, and that you fully understand how they are compensated.

The market recovery has been wonderful for many investors. Don’t be caught napping. It is critical in all markets to evaluate and monitor your portfolio in terms of your overall financial goals and risk tolerance as well as your individual holdings. If you ever find yourself forgetting this, just recall how you felt about your investments and your overall finances in early March of 2009.

Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments. He recently cofounded Retirement Fiduciary Advisors to provide direct investment and retirement planning advice to 401(k) plan participants. Roger also blogs at Chicago Financial Planner.